Full Opinion

In the United States Court of Federal Claims No. 24-1391T Filed: August 25, 2026 FOR PUBLICATION THE SOUTH SASKATCHEWAN COMMUNITY FOUNDATION INC., Plaintiff, v. UNITED STATES, Defendant. Stuart Evan Horwich, Horwich Law LLP, London, United Kingdom; Max Reed, Polaris Tax Counsel, Vancouver, Canada, for the plaintiff. Elizabeth Villarreal, Tax Division, U.S. Department of Justice, Washington, DC, for the defendant. MEMORANDUM OPINION HERTLING, Judge The plaintiff, South Saskatchewan Community Foundation Inc. (“SSCF”), sues the United States, acting through the Internal Revenue Service (“IRS”), for a refund of $60,735.18 in U.S. federal income tax withheld from its U.S.-source dividend income for the tax years ending December 31, 2019, and December 31, 2020. SSCF is a Canadian charity; it does not pay taxes in Canada on the earnings from its invested assets. SSCF contends it is entitled to a pro rata refund of its U.S. taxes under Article XXI(1) of the United States-Canada Convention with Respect to Taxes on Income and on Capital, Sept. 26, 1980, T.I.A.S. No. 11,087, as amended (the “Tax Treaty”).1 Article XXI(1) generally exempts qualifying charitable organizations, like SSCF, from tax in the other treaty country to the extent the income is exempt in their home country. The plaintiff argues that under Article IV(6) of the Tax Treaty, it derived income from holdings in the U.S. owned by the TD Greystone Global Equity Fund (the “Greystone Fund”), a Canadian unit trust, of which SSCF is a unitholder and 1 As amended by the Protocols signed on June 14, 1983, T.I.A.S. No. 11,087 (Protocol 1); March 28, 1984, T.I.A.S. No. 11,087 (Protocol 2); March 17, 1995, T.I.A.S. No. 97-1216 (Protocol 3); July 29, 1997, T.I.A.S. No. 97-1216 (Protocol 4); and September 21, 2007, T.I.A.S. No. 08-1215.2 (Protocol 5). beneficiary. Article IV(6) provides that income may be “derived” by a resident of a contracting state if the entity through which the resident derives the income is fiscally transparent. SSCF argues that the Greystone Fund is fiscally transparent under Canadian law and satisfies the definition of fiscally transparent under 26 C.F.R. § 1.894-1(d)(3)(iii) (the “Treasury Regulation”).2 SSCF concludes that under the Tax Treaty it may therefore claim Article XXI(1)’s exemption on its U.S.-derived income earned from the Greystone Fund. The defendant rejects SSCF’s argument, arguing that the Treasury Regulation is not relevant because the terms of the Tax Treaty itself control and foreclose SSCF’s argument. The defendant argues that the United States and Canada did not intend for Article IV(6) to apply to charities at all, and if it does apply the provision does not cover unit trusts or the income they derive, even when the beneficiary is a charity. The defendant argues that Article XXI(3), which specifically addresses tax-exempt organizations investing through pooled investment vehicles, is the only avenue for SSCF to preserve its tax-exempt status. Thus, the defendant argues that the Treasury Regulation need not be considered at all because the Tax Treaty itself does not treat unit trusts like the Greystone Fund as fiscally transparent. Thus, even if the Greystone Fund is fiscally transparent under the Treasury Regulation it would not fall within Article IV(6). To support its position, the defendant also relies on the Technical Explanation to the Fifth Protocol to the Tax Treaty (the “Technical Explanation”) and the Tax Treaty’s text and amendment history. The defendant contends that whether unit trusts are fiscally transparent or not, these sources show the shared understanding of both the United States and Canada that charities with holdings in unit trusts are unable to take advantage of Article IV(6)(b) in lieu of the express provision of Article XXI(3). 2 The Treasury Regulation provides: “[A]n entity is treated as fiscally transparent under the law of an interest holder’s jurisdiction with respect to an item of income to the extent that the laws of the interest holder’s jurisdiction require the interest holder resident in that jurisdiction to separately take into account on a current basis the interest holder's respective share of the item of income paid to the entity, whether or not distributed to the interest holder, and the character and source of the item in the hands of the interest holder are determined as if such item were realized directly from the source from which realized by the entity. However, an entity will be fiscally transparent with respect to the item of income even if the item of income is not separately taken into account by the interest holder, provided the item of income, if separately taken into account by the interest holder, would not result in an income tax liability for that interest holder different from that which would result if the interest holder did not take the item into account separately, and provided the interest holder is required to take into account on a current basis the interest holder’s share of all such nonseparately stated items of income paid to the entity, whether or not distributed to the interest holder. An entity will not be treated as fiscally transparent with respect to an item of income under the laws of the interest holder’s jurisdiction, however, if, under the laws of the interest holder’s jurisdiction, the interest holder in the entity is required to include in gross income a share of all or a part of the entity’s income on a current basis year under any type of anti-deferral or comparable mechanism. In determining whether an entity is fiscally transparent with respect to an item of income under the laws of an interest holder’s jurisdiction, it is irrelevant how the entity is treated under the laws of the entity's jurisdiction.” 2 If the plaintiff were correct in its interpretation of the Tax Treaty, it would prevail as it meets the definition of fiscally transparent under the Treasury Regulation, because Canadian law requires it to include its share of the Greystone Fund’s U.S.-source dividend income in its annual income on a current basis. Taken either separately or together, however, the Tax Treaty’s text, structure, and amendment history, confirmed by the Technical Explanation and the summary of the Fifth Protocol prepared by the congressional Joint Committee on Taxation (“JCT”) when considering the ratification of the Fifth Protocol, reflect that the signatories did not intend Article IV(6) to provide charities an alternative avenue to avoid taxation on income that does not qualify under Article XXI(3). Instead, through the adoption of Article XXI(3), the signatories intended that tax-exempt charitable organizations could obtain reciprocal tax treatment only by investing through pooled investments specified in that provision. In addition, the Technical Explanation reflects that unit trusts like the Greystone Fund do not satisfy Article IV(6). Accordingly, the defendant is entitled to summary judgment. I. FACTUAL BACKGROUND SSCF is a not-for-profit corporation and registered charity organized under the laws of Saskatchewan, Canada. Under the tax laws of Canada, SSCF is exempt from Canadian income tax, including on dividend income. SSCF provides small donors with the ability to create endowments and donor-advised funds which SSCF then manages, invests, and distributes to charities in the southern part of Saskatchewan. As of December 31, 2020, SSCF’s endowment was approximately CAD 90 million. During the 2019 and 2020 tax years, SSCF invested a portion of its endowment in the Greystone Fund, a fund organized under the laws of Ontario as a “unit trust.” A unit trust under Canadian law is a trust in which beneficiaries or unitholders own units, like shares in a fund, and those units can be redeemed with the trust. See Canadian Income Tax Act (“ITA”) § 108(2). A unit trust generally must be based in Canada and invest mainly in stocks, bonds, cash, or Canadian real estate. Id. As an investor in the Greystone Fund, SSCF is a beneficiary of the Greystone Fund.3 The Greystone Fund is established and subject to the terms of the TD Greystone Pooled Funds Amended, Consolidated and Restated Trust Agreement (Post-2000) (the “Trust Agreement”). Article 6.1 of the Trust Agreement outlines the distribution policy of the Greystone Fund: Sufficient of the net income and sufficient of the net realized taxable capital gains of each Fund for each taxation year shall be payable before the end of such year to unitholders of the Fund who were unitholders during the year so that the Fund will not have any liability for income tax. The amount payable to each unitholder shall be determined by the Manager as at the valuation time on each Distribution Day and shall become payable as at that valuation time 3 For the purposes of this opinion, beneficiary and interest holder are used interchangeably. 3 to the unitholders who were unitholders at the record time on the immediately preceding valuation day. The amount payable to a unitholder of the Fund at that time shall be equal to the unitholder’s proportionate share of the net income, if the Distribution Day is an Income Distribution Day, and the net realized taxable capital gains of the Fund, if the Distribution Day is a Capital Gains Distribution Day. (ECF 19-21 at 29.) According to the two Canadian tax forms issued by the Greystone Fund to SSCF, SSCF’s share of the Greystone Fund’s income was made payable in both 2019 and 2020 in accordance with Article 6.1. (ECF 19-12; ECF 19-13.) The Greystone Fund is managed by Toronto Dominion Asset Management. (ECF 1 4 at ¶ 6.) Unlike SSCF, the Greystone Fund is not a charity and is not tax-exempt under the laws of Canada. Among its holdings, the Greystone Fund owns U.S. equities. As the Greystone Fund is not a U.S. entity, when it earns dividend income on its U.S. equities, U.S. tax law requires a qualified intermediary to withhold taxes on that income and remit the withheld taxes to the IRS. In tax years 2019 and 2020, CIBC Mellon, the Greystone Fund’s qualified intermediary, withheld and remitted to the IRS tax on all the Greystone Fund’s U.S.-source dividend income, including dividends SSCF would have received. (Id. at ¶¶ 16, 22.) For tax years 2019 and 2020, CIBC Mellon issued one or more Forms 1042-S indicating that it remitted to the IRS $21,967 in U.S. income-tax payments for 2019, and $64,511 for 2020. (Id.) According to the plaintiff, these payments reflect a withholding tax rate of 15% of the gross amount of U.S.-source income, received by the Greystone Fund. (Id.) The plaintiff also claims a withholding tax rate of 30% for certain other U.S.-source income. (Id. at ¶ 22.) In September 2021, SSCF filed with the IRS a tax return as a foreign corporation (Form 1120-F) for the 2019 and 2020 tax years seeking a refund of its pro rata share of the income tax withheld by CIBC Mellon. (Id.) For 2019, the plaintiff estimated this amount to be $15,381.29. (Id. at ¶ 17.) For 2020, the plaintiff estimated its refund to be $45,353.89.5 (Id. at ¶ 23.) The Forms 1120-F explained that under the terms of the Tax Treaty, the plaintiff, as a registered Canadian charity, is exempt from paying U.S. income tax. (Id. at ¶¶ 17, 23.) The Forms 1120-F also claimed that the Greystone Fund is a flow-through entity for purposes of U.S. and Canadian income tax. (Id.) As a result, the plaintiff was entitled to the tax exemption provided under the terms of the Tax Treaty. (Id.) The IRS neither refunded SSCF’s withheld taxes nor issued a 4 The recitation of the facts cites to the complaint because the defendant does not challenge SSCF’s factual allegations. 5 Although the complaint seeks $45,383.89, a $30.00 increase for the 2020 tax year, SSCF acknowledged at oral argument that this discrepancy was due to a typographical error. 4 notice of disallowance or any other correspondence denying either of the plaintiff’s refund claims. (Id. at ¶¶ 18, 24.) In 2021, 17 Canadian tax-exempt entities seeking refunds of U.S. income taxes invoked Article XXVI(1) of the Tax Treaty to initiate its Mutual Agreement Procedure (“MAP”). (Id. at ¶¶ 11-14.) The MAP requires the tax authorities of both countries to attempt to resolve treaty interpretation issues. SSCF filed its own MAP request on September 3, 2024. (Id. at ¶ 11.) Canada and the United States have been unable to reach an agreement under the MAP process for any of the 18 pending MAP requests.6 (ECF 9-4 at 1.) On December 18, 2024, the Canada Revenue Agency (“CRA”) wrote to the plaintiff’s counsel in response to the plaintiff’s request for assistance under MAP. In the letter, the CRA opined that: The Taxpayers are resident in Canada and are registered charities and pensions plans for Canadian tax purposes. The Taxpayers’ income is exempt from taxation in Canada under Article 149(1) of the Income Tax Act. The Taxpayers report the dividend income earned from their investments through Canadian mutual funds on their Canadian tax returns. The Taxpayers’ income from dividends was subject to a 15% withholding tax in the United States. The Taxpayers requested a refund of this tax from the United States on the basis of Article XXI. The Canadian competent authority finds that the Taxpayers’ position has merit and that they should receive the benefit available under Article XXI. Id. II. PROCEDURAL HISTORY On September 9, 2024, the plaintiff filed its complaint. During discovery, the defendant withheld from its production communications from the CRA to the IRS in support of the claims of the Canadian non-profits. On April 23, 2025, the plaintiff moved to compel the production of the CRA’s communications with the IRS in connection with the MAP. (ECF 9.) The defendant opposed the motion. (ECF 10.) On July 15, 2025, at the conclusion of oral argument, the motion to compel was denied. (ECF 14.) On April 3, 2026, SSCF moved for summary judgment. (ECF 19.) The defendant responded to the plaintiff’s motion and filed a cross-motion for summary judgement on May 4, 2026. (ECF 20.) The plaintiff filed its reply and response (ECF 22) on June 4, 2026, and the defendant filed its reply (ECF 23) on July 2, 2026. Oral argument was held on July 28, 2026. III. JURISDICTION AND STANDARD OF REVIEW The Court of Federal Claims has jurisdiction pursuant to 28 U.S.C. § 1491(a) and 26 U.S.C. (“I.R.C.”) § 7422. See Christensen v. United States, 168 Fed. Cl. 263, 297 (2023) 6 All 18 MAP requests are being held in abeyance pending the outcome of this litigation. 5 (26 U.S.C. § 7422(f)(1) “expressly provides an exception to the jurisdictional bar on treaty-based claims” in 28 U.S.C. § 1502), appeal filed, No. 2024-1284 (Fed. Cir. Dec. 22, 2023). Under Rule 56 of the Rules of the Court of Federal Claims (“RCFC”), a “court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” “Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts” are inappropriate at the summary-judgment stage. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). An issue is “genuine” only if it “may reasonably be resolved in favor of either party,” and a fact is “material” if it “might affect the outcome of the suit under the governing law.” Id. at 248-50. The parties agree that there are no disputed issues of material fact, and that the case may be resolved through summary judgement. (See ECF 19-1; ECF 20.) RCFC 44.1 provides that a court’s interpretation of foreign law “must be treated as a ruling on a question of law.” As the case can be resolved based solely on the interpretation of the Tax Treaty and associated legal documents and regulations, it may be properly resolved as a matter of law. RCFC 44.1 also provides that “[i]n determining foreign law, the court may consider any relevant material or source, including testimony, whether or not submitted by a party or admissible under the Federal Rules of Evidence.” To the extent the legal dispute here turns on an interpretation of the language of the Tax Treaty, that language must be interpreted through typical analytical methods. As the Federal Circuit explained in Xerox Corp. v. United States, 41 F.3d 647, 652 (Fed. Cir. 1994), the provisions of a treaty are given their ordinary meaning in the context of the treaty and in the way that best fulfills the purposes of the treaty and the intent or expectations of the signatories. While a foreign government’s views of the meaning of its laws are entitled to respectful consideration, they are not controlling. Animal Science Products, Inc. v. Hebei Welcome Pharmaceuticals Co., 585 U.S. 33, 39 (2018). Just as courts no longer defer to an agency’s interpretation of U.S. law, Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), deference is not due to the interpretation by either a U.S. or Canadian agency of a Canadian law written in English. The meaning of both U.S. and Canadian laws, as well as that of the Tax Treaty, is susceptible to being construed, interpreted, and applied using traditional methods of statutory interpretation. IV. TREATY & TECHNICAL EXPLANATION TO THE FIFTH PROTOCOL The Tax Treaty was initially ratified in 1942. The 1942 Treaty was amended in 1950, 1956, and 1966. In 1980, the Tax Treaty was entirely renegotiated and has subsequently been amended in 1983, 1994, 1997, and 2007. The provisions at issue here were added in 2007, as part of the Fifth Protocol to the Tax Treaty. Every iteration of the Tax Treaty has provided reciprocal exemptions from income tax derived by each other’s tax-exempt organizations, including taxes owed on interest and dividend income. Article XXI(1) of the current version of the Tax Treaty provides: 6 Subject to the provisions of paragraph 4, income derived by a religious, scientific, literary, educational or charitable organization shall be exempt from tax in a Contracting State if it is resident in the other Contracting State but only to the extent that such income is exempt from tax in that other State. (ECF 19-3 at 22.) Article XXI(3) allows tax-exempt organizations to avoid taxation on income derived through a trust that is itself exempt from income taxation and operated solely to earn income for tax-exempt organizations: Subject to the provisions of paragraph 4, income referred to in Articles X (Dividends) and XI (Interest) derived by a trust, company, organization or other arrangement that is a resident of a Contracting State, generally exempt from income taxation in a taxable year in that State and operated exclusively to earn income for the benefit of one or more of the following: (a) an organization referred to in paragraph 1; or (b) a trust, company, organization or other arrangement referred to in paragraph 2; shall be exempt from income taxation in that taxable year in the other Contracting State. (Id. at 22-23.) In addition to these sections specifically addressing tax-exempt organizations, SSCF relies on Article IV(6) of the Tax Treaty, which provides that income may be “derived” by a resident of a contracting state if the entity through which it derives its income is fiscally transparent. Article IV(6) specifically reads: An amount of income, profit or gain shall be considered to be derived by a person who is a resident of a Contracting State where: (a) the person is considered under the taxation law of that State to have derived the amount through an entity (other than an entity that is a resident of the other Contracting State); and (b) by reason of the entity being treated as fiscally transparent under the laws of the first-mentioned State, the treatment of the amount under the taxation law of that State is the same as its treatment would be if that amount had been derived directly by that person. 7 (Id. at 5-6.) Both parties agree that had SSCF invested directly in the same U.S. securities held by the Greystone Fund, it would have derived the income itself, and no U.S. tax would be owed on the income under Article XXI(1). Likewise, the parties agree that, under Article XXI(3), SSCF’s U.S. income through the Greystone Fund would not be subject to tax had the Greystone Fund been exempt from income taxation and operated solely to earn income for tax-exempt organizations. Finally, both parties agree that the Greystone Fund does not satisfy the restriction of Article XXI(3) because its unitholders are not limited to tax-exempt organizations. Articles IV(6) and XXI(3) were both adopted through the Fifth Protocol to the Tax Treaty. In conjunction with the amendments to the Tax Treaty made by the Fifth Protocol, the United States prepared a Technical Explanation. The Technical Explanation is “an official United States guide to the [Fifth] Protocol[,]” which “[t]he Government of Canada has reviewed . . . and subscribe[d] to its contents.” (ECF 19-8 at 2.) The Technical Explanation “accurately reflects the policies behind particular Protocol provisions, as well as understandings reached with respect to the application and interpretation of the protocol and the Convention.” (Id.) Thus, the Technical Explanation provides the U.S. government’s formal interpretation of Articles IV(6) and XXI(3), which the Canadian government endorsed. Regarding Article IV(6), the Technical Explanation notes that: New paragraphs 6 and 7 are added to Article IV to provide specific rules for the treatment of amounts of income, profit or gain derived through or paid by fiscally transparent entities such as partnerships and certain trusts. Fiscally transparent entities, as explained more fully below, are in general entities the income of which is taxed at the beneficiary, member, or participant level. Entities that are subject to tax, but with respect to which tax may be relieved under an integrated system, are not considered fiscally transparent entities. Entities that are fiscally transparent for U.S. tax purposes include partnerships, common investment trusts under section 584, grantor trusts, and business entities such as a limited liability company (“LLC”) that is treated as a partnership or is disregarded as an entity separate from its owner for U.S. tax purposes. Entities falling within this description in Canada are (except to the extent the law provides otherwise) partnerships and what are known as “bare” trusts. (ECF 19-8 at 4.) Regarding Article XXI(3), the Technical Explanation notes that: New paragraph 3 replaces and expands the scope of former subparagraph 2(b)[.] Former subparagraph 2(b) provided that, subject to the provisions of paragraph 3 (new paragraph 4), a trust, company, organization or other arrangement that was a resident of a Contracting State, generally exempt from income taxation in that 8 State and operated exclusively to earn income for the benefit of one or more organizations described in subparagraph 2(a) (new paragraph 2) was exempt from taxation on dividend and interest income arising in the other Contracting State in a taxable year. The Internal Revenue Service concluded in private letter rulings (PLR 200111027 and PLR 200111037) that a pooled[-]investment fund that included as investors one or more organizations described in paragraph 1 could not qualify for benefits under former subparagraph 2(b). New paragraph 3 now allows organizations described in paragraph 1 to invest in pooled funds with trusts, companies, organizations, or other arrangements described in new paragraph 2. (Id. at 41.) In connection with the Senate’s consideration and ratification of the Fifth Protocol in 2007, the JCT prepared a report outlining the Senate’s understanding of the provisions at the center of SSCF’s claim. The JCT is a bicameral, bipartisan committee that assists in evaluating tax treaties during Senate consideration of their ratification. Although not prepared by either of the direct parties to the negotiation, the report reflects the contemporaneous understanding of the Senate that ratified the Fifth Protocol. The JCT provided an explanation of the purpose of Article XXI(3): Under the present treaty, certain types of exempt organizations (for example, pensions) may invest either directly or indirectly with other organizations of the same type, while other types of exempt organizations (for example, charities) are limited to direct investments. Thus, charitable type organizations−which are limited to direct investments−cannot participate in collective investment vehicles. This has the corresponding impact of prohibiting charitable-type organizations from pooling their investments with pensions that are investing indirectly through collective investment vehicles. New paragraph 3 eliminates this restriction by permitting charitable-type organizations to pool their investments with other exempt organizations. Thus, once the proposed protocol enters into force, charitable type organizations will be able to invest indirectly; this will have the corresponding impact of permitting them to pool their investments with pension-type organizations that are also investing indirectly. (ECF 19-5 at 76.) The JCT also provided an explanation of the purpose of Article IV(6): Paragraph 2 of Article 2 of the proposed protocol adds paragraphs 6 and 7 to Article IV of the treaty. These new paragraphs provide 9 specific rules for the treatment of amounts of income, profit, or gain derived through or paid by fiscally transparent entities. As explained more fully below, fiscally transparent entities are entities the income of which is taxed at the beneficiary, member, or participant level. Entities that are subject to tax, but with respect to which tax may be relieved under an integrated system, are not considered fiscally transparent entities. Entities that are fiscally transparent for U.S. tax purposes include partnerships, common investment trusts under section 584, grantor trusts, and business entities such as a limited liability company (“LLC”) that is treated as a partnership or is disregarded as an entity separate from its owner for U.S. tax purposes, including those entities that may elect such status.[ ] According to the Technical Explanation, entities falling within this description in Canada are (except to the extent the law provides otherwise) partnerships and what are known as “bare” trusts. These new paragraphs are relevant to a number of articles of the treaty, including Article V (Permanent Establishment), Article VII (Business Profits), [ ], Article X (Dividends), Article XI (Interest), and Article XII (Royalties). (Id. at 41-42.) V. THE PLAINTIFF’S ARGUMENT SSCF argues it is entitled to a pro rata refund of the U.S. tax on the Greystone Fund’s U.S.-source dividend income. SSCF contends that it qualifies for a tax exemption under Article XXI(1) because the Greystone Fund is fiscally transparent under Canadian law, and therefore, under Article IV(6), SSCF derived its U.S.-source dividend income directly. The parties do not dispute that Article IV(6)(a) is satisfied because SSCF derived the income through the Greystone Fund, a Canadian entity. The parties dispute whether the Greystone Fund is fiscally transparent under Canadian law as required to satisfy Article IV(6)(b). Although Article IV(6)(b) of the Tax Treaty does not define what entities are fiscally transparent, the parties agree that, under Article III(2) of the Tax Treaty, undefined terms are defined pursuant to U.S. law when U.S. tax is at issue. Thus, the parties agree that for the purposes of Article IV(6)(b), the Treasury Regulation provides the relevant definition of fiscally transparent. 7 7 As discussed below, the defendant disputes that Article IV(6) applies here. 10 The Treasury Regulation defines a fiscally transparent entity as an entity that satisfies the “income inclusion rule” and either the “character and source rule” or the “same treatment rule.”8 The “income inclusion rule” of the Treasury Regulation provides: [A]n entity is treated as fiscally transparent under the law of an interest holder’s jurisdiction with respect to an item of income to the extent that the laws of the interest holder’s jurisdiction require the interest holder resident in that jurisdiction to separately take into account on a current basis the interest holder's respective share of the item of income paid to the entity, whether or not distributed to the interest holder, and . . . The Treasury Regulation goes on to restate the “income inclusion rule,” further providing: . . . and provided the interest holder is required to take into account on a current basis the interest holder’s share of all such nonseparately stated items of income paid to the entity, whether or not distributed to the interest holder. The “character and source rule” of the Treasury Regulation provides: [T]he character and source of the item in the hands of the interest holder are determined as if such item were realized directly from the source from which realized by the entity. The “same treatment rule” of the Treasury Regulation provides: However, an entity will be fiscally transparent with respect to the item of income even if the item of income is not separately taken into account by the interest holder, provided the item of income, if separately taken into account by the interest holder, would not result in an income tax liability for that interest holder different from that which would result if the interest holder did not take the item into account separately, . . . To meet the definition of “fiscally transparent” under the Treasury Regulation, SSCF must satisfy the “income inclusion rule” and either the “character and source rule” or the “same treatment rule.” The defendant concedes that SSCF would satisfy the “same treatment rule” 8 The parties refer to the Treasury Regulation’s first clause as the “income inclusion rule,” the second as the “character and source rule,” and the third as the “same treatment rule.” The parties’ labels for the requirements set out in the clauses of the Treasury Regulation are adopted herein. 11 because of its tax-exempt status in Canada, leaving the parties to dispute whether SCF meets the “income inclusion rule.” The plaintiff argues that SSCF satisfies the “income inclusion rule” for its U.S.-source dividend income because Canadian law requires SSCF to include its share of the Greystone Fund’s U.S.-source dividends in its income for tax purposes, whether the Greystone Fund distributes the income to SSCF or not. The plaintiff argues that sections 104(13) and 104(24)(a) of the ITA require income paid or made payable to a trust beneficiary be accounted for in the year in which it was paid or made payable. ITA § 104(13) provides: There shall be included in computing the income for a particular taxation year of a beneficiary under a trust such of the following amounts as are applicable: (a) in the case of a trust (other than a trust referred to in paragraph (a) of the definition trust in subsection 108(1)), such part of the amount that, but for subsections (6) and (12), would be the trust’s income for the trust’s taxation year that ended in the particular year as became payable in the trust’s year to the beneficiary; and (b) in the case of a trust governed by an employee benefit plan to which the beneficiary has contributed as an employer, such part of the amount that, but for subsections (6) and (12), would be the trust’s income for the trust’s taxation year that ended in the particular year as was paid in the trust’s year to the beneficiary. According to SSCF, this provision requires it to include in its income its share of the portion of the Greystone Fund’s income that “became payable” to it in the year it was paid or was made payable. The plaintiff then cites ITA § 104(24), which defines “payable” income as: For the purposes of subsections (6), (7), (7.01), (13), (16) and (20), subparagraph 53(2)(h)(i.1) and subsections 94(5.2) and (8), an amount is deemed not to have become payable to a beneficiary in a taxation year unless it was paid in the year to the beneficiary or the beneficiary was entitled in the year to enforce payment of it. This section is written in the negative. Under ITA § 104(13), income is not payable unless it is paid to a beneficiary or a beneficiary is entitled to enforce payment of it; thus, income is payable if either it is paid in the year to a beneficiary or the beneficiary is entitled to enforce payment of the income. The plaintiff contends that SSCF’s U.S.-source dividend income from the Greystone Fund satisfies the definition of “payable” under ITA § 104(24). Under the Greystone Fund’s Trust Agreement, the trustee is required each year to pay enough of the Greystone Fund’s income and taxable investment gains to its unitholders before year-end so that the Greystone Fund itself does not have to pay income tax. (ECF 19-21 at 29.) Thus, because the Greystone 12 Fund’s Trust Agreement obliges the trustee to make income “payable” to unitholders, SSCF acquires, no later than year‑end, a legal right every year to enforce payment of its share of the trust’s income, including U.S.-source dividends. The plaintiff argues that that right is grounded both in the terms of the Trust Agreement and in the trustee’s statutory obligation under Ontario’s Trustee Act to administer the trust in accordance with the trust instrument. The plaintiff continues that under ITA § 104(13)(a), SSCF must include in its income for each year the portion of the Greystone Trust’s income that “became payable” to it during that year. Because the Trust Agreement requires the Greystone Fund to make its net income and net realized taxable capital gains either paid or payable to unitholders to avoid entity-level tax, SSCF must take its share of the U.S.-source dividend income into account whether those funds are distributed to unitholders or not. In other words, the amounts are included in SSCF’s income once they are paid or at the end of each year, when SSCF has the enforceable legal right to their payment; their inclusion in SSCF’s income does not depend on their actual distribution. The Trust Agreement thus confers on SSCF, as a unitholder, a present legal right to compel payment of its income allocation. Under Canadian law, this present enforceable right causes the income to be “payable” within the meaning of ITA § 104(24) and therefore included in SSCF’s income under ITA § 104(13)(a), on a current‑year basis, even if the funds are retained by the Greystone Fund. Consequently, on the plaintiff’s analysis, Canadian law requires SSCF to include in its income the full amount of the Greystone Fund’s U.S.-source dividends that are paid or payable to it, regardless of whether those amounts are distributed in cash or not, thereby satisfying the Treasury Regulation’s “income inclusion rule.” Because the defendant does not dispute the application of the other requirements of the Treasury Regulation, SSCF posits it must prevail. VI. THE DEFENDANT’S ARGUMENT The defendant argues that the Treasury Regulation need not be considered because the Tax Treaty itself resolves the issue. The defendant posits that Article IV(6) does not treat unit trusts as fiscally transparent. Thus, the issue of whether the Greystone Fund might qualify as fiscally transparent under the Treasury Regulation is irrelevant to the question of whether SSCF is liable for U.S. taxes on its U.S.-source dividend income. According to the defendant, Article IV(6)(b), on which SSCF’s case turns, does not apply to unit trusts like the Greystone Fund. Thus, SSCF cannot be treated as having derived the Greystone Fund’s U.S.-source dividend income through the Greystone Fund. Consequently, SSCF would not qualify for the exemption conferred on charitable institutions by Article XXI(1) with r